Five years ago, Barclays wanted to be seen as an innovation player in financial services, providing customers with new, easy solutions. Barclaycard took the initiative and became the market leader in contactless payments. Tom Gregory, head of digital payments at Barclaycard, speaks to Future Banking about the journey the company has been on and what’s still to come.
Barclays' contactless journey started in 2007 and gradually became a standard feature on all its merchant terminals. The transition of the credit card experience onto a mobile phone was only natural, even though the uses of smartphones now were unimaginable back then.
Today, however, putting payment capabilities into a phone isn't such a big step in terms of what customers use their mobiles for. But implementing contactless technology wasn't easy. Even though the means already existed, the murky world of near-field communications (NFC) revealed its complexities. But, because Barclays was in the game early, it was in a position to help the industry create some the methods and strategies as the technology evolved.
"It's not like we could just take these things off the shelf," says Tom Gregory, head of digital payments at Barclaycard. "It ended up being a much lengthier journey than we initially wanted. But, as a result, in 2011 we managed to launch the UK's first true mobile contactless payments solution with Orange. For the first time, it piqued the interest of customers and how they could use phones to make payments."
It cemented Barclaycard as a pioneer in the payments space and, the more phones the service was developed for, the more widely accepted the contactless payments system became in the marketplace. But Barclaycard knew it wasn't a one-man show, being dependent on a number of different partners to make it happen, including handset manufacturers and network operators.
Building on core payments infrastructure
This was a new concept for Barclays, and creating such a cohesive ecosystem didn't happen overnight. But, because its payment services sit on its core payments infrastructure - and the company entirely owns both sides - the architecture was already there, which was half the battle.
"We just had to bring them together to enable them on a mobile phone," explains Gregory. "We haven't created much that's new. We just repurposed and integrated systems that we know and manage ourselves, which also include IT systems across fraud and risk.
"If you look at the traditional banking model, we pretty much own it end-to-end. When we get into this contactless space, suddenly it's a whole new experience for us. You only have to look across the chequered history of banking over the past 20 years to see that relationships break down. But we believe in the strength of our relationship with Orange because we have those shared principles of wanting to bring NFC services and payments to the Orange customer base."
Once partnerships were established to stimulate customer acquisition, Barclaycard was able to accelerate the market by introducing PayTag - a dogtag-sized adhesive card that let customers embark on the mobile contactless payment experience by attaching it to the back of their phones.
"Consumers are emotionally tied to their phones, much more so than five years ago," says Gregory. "If you can make it easy for customers to pay for things, that's a great first step. We see this as virtually a cash replacement."
NFC to the masses
The pace of getting NFC to the mass market is increasing for both customers and merchants because of the cost of cash, the cost of security around cash and time at the terminals. A prime example Gregory cites is McDonalds. When the firm went contactless in 2011, it realised that most of the purchases made were under £20 and, because footfall and speed at the till were so important, NFC allowed it to speed up that process.
What McDonalds has also done is train its staff to promote contactless as the best way to pay, which really helps drive customer behaviour.
"We're trying to really drive usage across all form factors: cards, phones, PayTags, PayBands [worn around the wrist] - whatever it might be," says Gregory. "And by providing all these different services, we're offering our customers choice."
Apart from fast-food and plans at the Post Office and TfL to adopt contactless - already ingrained with the Oyster card - Gregory is also spearheading ways to make online payments easier. Advances in the e-commerce space have helped, but most customers still have to put in their credit-card number and billing address, and doing that a few times a day in different online shops can be frustrating.
In the m-commerce space, where people are using phones and trying to checkout holding the card in one hand and typing with the other, one of the biggest constraints is the payment itself, which is ironic, according to Gregory, because the payment should be "the hygiene factor" that's almost invisible at the end.
Gregory also looks after strengthening broader purchasing experiences. By having relationships with customers at the point of payment through to the services offered, they can add value to that customer. Coupons are one example, because that's what consumers are asking for, but that's just one of many.
"If a consumer decides to buy something and they search online for the cheapest option, they might decide to buy in store or online; they might browse for a while and then buy," explains Gregory. "Then, after they've bought something, there's distribution, a warranty or guarantee and receipting.
"The payment itself is actually very narrow. In the traditional world, customers walk into a shop and get out their wallet to buy. By providing digital payment services, we can also add greater value to that experience. That's the vision of what we're trying to achieve."
There is an ongoing challenge to implement innovative services to meet immediate demand, and it is virtual guesswork to map out the future of NFC and mobile payments (m-payments).
"In five years time, what we think it looks like now, it won't look like that because the world moves so quickly," says Gregory. "But we can speculate. We know there will still be a high street; there will still be the need for face-to-face and online payments, and that the online space will stretch beyond traditional m-commerce to t-commerce, when interconnected TVs come into play, or s-commerce [social commerce], so people might buy more through Facebook using virtual currencies."
What's also discussed is the melding of remote and proximity payments. When a customer sees an item and then immediately searches on a mobile to see if it's available somewhere else for less, it enables that customer to be in multiple stores at once. With that, according to Gregory, a convergence of what traditionally have been separate payment types: face-to-face and remote payments, will emerge.
"We're trying to create the payment solutions to have that flexibility," he says. "This means that as another five years comes closer, and the world changes and our customers demand different things, we have the appropriate payment solutions in place to support that."
But, just as people can be in five shops at once, they can also be shopping for five different banks at the same time. This means that remaining competitive, and continuing to attract and retain customers is the fundamental motivation at Barclays, regardless of its current lead in the contactless payments space. Remote payments are a different story with companies like PayPal, but the contactless market is growing and that frontrunner position may change.
"We're beginning to see other banks play in this space, and we welcome that because to get universal acceptance of contactless - we can't change customer behaviour on our own," says Gregory. "We can influence it, drive the market and try to put down standards and so on, but we'd like everyone to do it as well because that's how we can really get customer behaviour to change.
"But, in light of how unpredictable the market is, non-traditional players in payments service such as the Google Wallet and Apple Passbook, which could easily move into payments, have to be considered. Big technology players see value in offering their customers services in this space. That's going to move the market very quickly and potentially change the direction of the market."
Building trust in contactless payments
As the market evolves, two fundamental needs dictate virtually everything else: security and ease of use. With cutting-edge technologies, customers are rightfully wary of security because they're being asked to use devices in new ways, much like people's apprehension to buy online during the dotcom explosion 15 years ago. Today, however, the segment of people who don't buy online is very small because most people comfortable are comfortable with e-commerce. But there will still be a learning curve.
"We're going to have to go through a similar journey with m-payments," says Gregory. "It won't take as long because people are more tech-savvy now, but we're going to have to educate our customers that this is safe and secure, not just convenient. For us, the IT challenges revolve around security and making sure the customer experience is simple because, if you have too many blocks in the customer experience, people aren't going to use it."
Furthermore, with partners like Orange, high levels of disaster recovery are in place to ensure continued running service, since consistent service equates to customer confidence.
"That robustness of the IT and the solutions that sit behind it are extremely important to us," adds Gregory. "We have a lot of good partners to help us in this space."
As pieces fall into place, making payments via phones will become second nature, with all of the capabilities integrated within the phones, rather than stuck onto the back like the current PayTag - something that would have made Steve Jobs shudder. It's going to take time to saturate the population with NFC-enabled phones because people generally replace their phones every couple of years. But it's only a matter of time.
"What we tried to do with PayTag is to say it doesn't matter what phone you have," says Gregory. "While we wait for the technology to catch up, customers can get used to tapping and paying. And their next phone that's NFC-enabled and has the functionality embedded is just the next iteration. It's a small step for the customer to take because they're already used to it by that point."